Sounds like a trick question, but it's not. I was asked recently by a new business owner if she had to collect sales tax. She is selling craft items at craft fairs and flea markets, and she wasn't sure. My answer is, as usual, "it depends." If you are selling crafts at a craft fair or flea market, you probably need to collect sales taxes and pay them to your state.
If this business owner doesn't add sales tax to her sales and send in the taxes, she can be subject to fines and penalties. And I'm sure there are sales tax agents wandering around craft fairs looking for vendors who aren't collecting taxes.
How Do I Know If My Product or Service is Subject to Sales Tax?
Sales taxes are a state thing, and each state has different rules. Go to the website of your state's sales tax agency (usually the State Department of Revenue or similar name) and see if you can find a list. Sometimes the list is in the negative; that is, only those items/services NOT subject to sales tax are listed, with the assumption that everything else is subject to sales tax.
For services, check the Services Taxation Survey which you can search in two ways:
- By state, for a list of services which are taxable in that state
- By service, to see which states tax that service.
How to I Pay Sales Tax?
You first need a federal Employer ID Number (which you can obtain online or by phone). Then you apply for a state tax permit or sales license, from your state taxing authority. You collect based on the sales tax rate for the area where the buyer is based, and you pay according to the requirements of your state - the more tax you collect, the more often you have to pay.
Can I Ignore the Tax and Just Increase the Price of the Item?
That's not allowed because it makes it impossible to tell the true price of the item and the true amount of sales tax. For example, if you sell a purse for $20, including sales tax, what was the price of the purse, and what is the amount of sales tax? If you round up or down, you may be over-charging or under-charging your customers for the sales tax.
Sales Taxes are a Trust Fund Tax
As a final reminder, note that sales taxes are collected by you from customers but they are not yours to do with as you wish. You are holding them in trust for your state taxing agency and you must pay them only for that purpose. No paying bills with them.
You know what they say about there being only two things which are certain. And sales taxes are definitely certain.
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